Daily Posts

Internet Stocks Clipped in Hong Kong, Mainland Markets To Reopen Tomorrow

Key News

Asian equities were mixed but mostly lower overnight as Hong Kong was a significant laggard and Mainland China was closed. Growth and internet stocks were clipped following last week’s rally, which was powered by recent positive statements from Mainland authorities, implying that the internet regulatory cycle has ended. Adding to investor uncertainty is US Fed Chair Powell’s expected announcement this afternoon regarding the May interest rate hike.

The Ministry of Transport (MoT) estimated that the 2022 Labor Day holidays will see 100 million passenger trips in China (-62% YoY and -61% vs. 2019), reflecting the impact that lockdowns have had on travel in China.

Japanese investment bank Mizuho stated in a recent report that JD and Baidu would be key beneficiaries of internet regulation over the long term, gaining market share. We agree with this position and have written extensively about the opportunity that regulation has presented Baidu, which launched a “managed page” business to compete with E-Commerce. We are now seeing search engine Google doing the same in the US.

Health care stock Hutchmed was down -16% in Hong Kong on Tuesday and shares in the company continued their decline overnight as the FDA rejected its application for a license to sell a pancreatic cancer treatment in the US, citing the lack of geographic diversity in trials. The Chinese biotechnology industry has been growing rapidly and has been trying to expand globally, especially into the lucrative US market. However, industry players have been discovering that they must conduct trials on populations outside of China in order to secure US approval. I expect Hutchmed will be back with better results to win over the FDA, which is the gold standard in pharmaceutical regulation. We believe that China health care overall has been oversold.

Ping An Insurance is calling for a break up of HSBC, of which the insurance company is a significant shareholder, along regional lines, creating two separately-traded stocks for its Asia and Western businesses. Ping An is arguing that the standalone Asia business would be far more profitable than the combined business is today. Furthermore, the insurer believes that such a schism would help the bank smooth over political issues, creating a China-friendly bank in Asia and a US-friendly bank in the West. Hong Kong banks were broadly higher overnight.

The Hang Seng Index and Hang Seng TECH Index both closed lower at -1.10% and -3.29%, respectively, on volume that was -32% lower than yesterday, well off the 1-year average as Southbound Stock Connect remains closed along with Mainland markets. Real estate had another strong day, gaining over +2% for the second day in a row while materials, technology, and consumer discretionary were sector laggards. Value factors slightly outperformed growth.

Stock and bond markets in Mainland China will reopen tomorrow.

Last Night’s Exchange Rates, Prices, & Yields

Mainland currency, commodity, and bond markets were closed overnight.